US Charges FTX Ex-CEO in Billion Dollar Fraud Scheme

Опубликовано: 14 Декабрь 2022

Sam Bankman-FriedSamuel Bankman-Fried, CEO of the crypto exchange platform FTX Trading Ltd., stands accused of defrauding investors of billions of dollars. (Photo: Cointelegraph/Youtube, Wikimedia, License)

The U.S. Securities and Exchange Commission (SEC) Tuesday charged the CEO of a now-defunct crypto exchange platform with orchestrating a scheme to defraud his investors as well as regular customers of billions of dollars.

Samuel Bankman-Fried, CEO and co-founder of the crypto exchange platform FTX Trading Ltd. (FTX), stands accused of defrauding venture capitalists of their investments, which he allegedly diverted to his own privately-held crypto trading firm Alameda Research LLC, in addition to making lavish real estate purchases and large political donations.

The indictment follows his arrest in the Bahamas yesterday, made at the request of the U.S. government, according to Damian Williams, U.S. attorney for the Southern District of New York.

Since FTX’s founding in the Bahamas in May 2019, Bankman-Fried fraudulently promoted the company as a safe, responsible crypto trading platform with “sophisticated, automated risk measures to protect customer assets,” the SEC said. This allowed him to raise more than US$1.8 billion from equity investors, with approximately $1.1 billion coming from fewer than 100 investors alone.

“Unbeknownst to those investors (and to FTX’s trading customers), Bankman-Fried was orchestrating a massive, years-long fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire,” the courts said.

“Throughout this period,” the indictment continued, Bankman-Fried “portrayed himself as a responsible leader of the crypto community. He touted the importance of regulation and accountability. He told the public, including investors, that FTX was both innovative and responsible. Customers around the world believed his lies, and sent billions of dollars to FTX, believing their assets were secure on the FTX trading platform.”

But since the very beginning of FTX’s operations, the former crypto billionaire allegedly diverted funds to Alameda in secret, creating what the SEC described as “a virtually unlimited line of credit.” He also failed to follow key FTX risk mitigation measures when acting on Alameda’s behalf, jeopardizing investors’ interests.

The SEC further alleges he “used Alameda as his personal piggy bank” in the form of “undisclosed venture investments, lavish real estate purchases, and large political donations.”

The fraud began to crumble, however, in May this year, after crypto currencies plunged on the markets.

Alameda’s lenders soon called in loans worth billions of dollars. But despite the fact that the private hedge fund had already siphoned billions from FTX assets, it still couldn’t amass enough capital to satisfy its loan obligations.

It was at this point, prosecutors say, that Bankman-Fried diverted billions more from FTX to Alameda to maintain the loans. And all the while, in spite of the ship sinking at such an alarming rate, he misled investors as to the company’s status.

One such investor was the Ontario Teachers’ Pension Plan, which had roughly $100 million tied up with FTX. The plan described the alleged fraud scheme as “deeply concerning” and stated its intention to write off its investment in  FTX from its books by year’s end.

Altogether, FTX once had more than one million users and roughly $32 billion in market value. But last month, the company filed for bankruptcy and its website is now offline.

“The American public deserves to hear directly from Mr. Bankman-Fried about the actions that’ve harmed over one million people, and wiped out the hard-earned life savings of so many,” Congresswoman Maxine Waters (D-CA), chairwoman of the House Financial Services Committee, said in an official statement.

“FTX operated behind a veneer of legitimacy,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, adding that the collapse of the crypto hedge fund “highlights the very real risks that unregistered crypto asset trading platforms can pose for investors and customers alike.”